Lazada, Tesco And The Logic Of Logistics

Posted: Dec 22 2013, 6:11pm CST | by , in News

Lazada, Tesco and the Logic of Logistics
Photo Credit: Forbes

The customers of Lazada are all online but the regional shopping site sometimes resorts to attracting them the old-fashioned way: with TV ads, like the one above shown in Indonesia. I probably should have chosen this TV ad for Lazada Malaysia since it promotes the website’s fast delivery, which is more in keeping with the gist of this post,  but the frenetic quality of the Indonesian ad will be more striking to a foreign audience. Lots of Thai commercials are like that too: they made induce headaches in foreigner but they are probably effective.

If  the name Lazada rings a bell, you may have heard that Tesco has invested in the Rocket start-up aiming to be the first-stop shopping site in Indonesia, Malaysia, Philippines, Thailand and Vietnam.

The size of the British supermarket giant’s share wasn’t disclosed and may be small, but the total investment of $250 million in this funding round was by far largest for Lazada. Outside investors have now contributed at least $486 million to Lazada since September 2012. Launched in April 2012 by the Berlin-based Rocket Internet and employing  1,500 people, Lazada sites sell electronic appliances, mobile phones, games, housewares and, increasingly, clothing. As its executives repeatedly stress, Lazada aims to be no less than “the Amazon of Southeast Asia.”

Tesco’s next steps appear to be still undefined. From Singapore, Lazda CEO Max Bittner told me, “Yes, I can potentially think about selling food.”  After Wal-Mart, Tesco is the world’s largest bricks-and-mortar retailer but revenues at home are slumping and the brand isn’t well known in Southeast Asia. Tesco’s only stores in the region are in Malaysia and Thailand; it began online sales in those countries in 2012 and only delivers its online goods in the vicinity of the Tesco stores, Bittner said. With Lazada’s logistics capability, “What we clearly see in the future is to extend their reach.” Lazada can also share its knowledge of customer behavior, he said.

Tesco executives have also mentioned Lazada’s sourcing and supply chain as well as the possibility of cross-promotion of products and private label products. Lazada also provides eBay-style marketplace for third-party merchants, which is where Tesco could open a storefront.

2012 Net Revenue: $13 million

True to the closemouthed customs of Rocket and the founding Samwer brothers, Bittner declined  to talk numbers— be it Tesco’s stake, Lazada’s revenues or the country sites’ timeline for profitability.

However, Lazada had net revenue of  $13.5 million in 2012, slightly more than the $12.9 million of its sister fashion site, Zalora, according to financial statement of Sweden’s Investment Kinnevik. Kinnevik, a participant in several Lazada funding rounds, also has a 25% stake in Rocket itself.

At a presentation in Bangkok last week of his new online clothing venture, Pomelo, David Jou, co-founder and former managing director of Lazada Thailand, said that in 14 months, the Thai site grew from an initial 50-60 orders per day with sales of about $75,000 per month to 1,100 orders per day with sales of $1.1 million per month. Sixty percent of sales were in the Bangkok area and the remainder in provincial cities and the countryside. Facebook ads were crucial, he said: half the site’s sales were triggered by Facebook ads that brought users to the Lazada site.

In April this year, Bittner told an Indonesian news site that Indonesia was Lazada’s “stronges performing  market”  while Lazada Indonesia’s chief Magnus Ekborn anticipated as much as US$7 billion in annual sales within a few years. Ekborn said that Indonesia was then responsible for 30% of the Lazada revenue, which would make Indonesia the leading Lazada sales site. Bittner said now, however, “That’s not true. All the countries are very close. If you look at Indonesia and Thailand, they change who’s first on a monthly basis.”

“We can ship to Papua”

Regardless of sales figures, it’s impossible to make any guesses about the prospects for profitability because of the massive, incalculable investment Lazada and Zalora are making to build a chain of supplies, warehouses and reliable delivery services. Consider for a moment the locations of some of the remotest Indonesian and the Philippine islands.

“We sell nationwide. We will find you anywhere. We can ship to Papua. That’s our USP,” Bittner said. “That’s the key position we bring on the table. We try to cover one-hundred percent of the country with cash on delivery. We have built a network of logistics services which allows us to get to anyone.”

Yes, Lazada faced one localization challenge Amazon didn’t in the United States: many of the 535 million residents of the five countries don’t have credit cards or are wary of using them to buy an item online: so they can pay cash on delivery.

Customers are alerted that a package is on the way with a phone call or, in the Philippines, an SMS message. Increasingly that will mean smartphones now that $100 versions are sweeping the region.

While the numbers are vague and survey methods vary, everyone agrees that the e-commerce’s share of overall retail commerce in Southeast Asia is tiny—somewhere around 1%. Bittner says that share lags behind China (at 5%) and even India (between 2% and 3%)

“We see that gap as a massive opportunity,” Bittner said. “With the leapfrogging of tech in the past year–or even the past six months–with the availability of cheap smartphones, everyone can come online.”

Source: Forbes

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